| By: |
Tarek A. Hassan (Boston University);
Jesse Schreger (Columbia University);
Markus Schwedeler (Boston University);
Ahmed Tahoun (London Business School) |
| Abstract: |
We construct new measures of country risk and sentiment as perceived by global
investors and executives using textual analysis of the quarterly earnings
calls of publicly listed firms around the world. Our quarterly measures cover
45 countries from 2002-2020. We use our measures to provide a novel
characterization of country risk and to provide a harmonized definition of
crises. We demonstrate that elevated perceptions of a country's riskiness are
associated with significant falls in local asset prices and capital outflows,
even after global financial conditions are controlled for. Increases in
country risk are associated with reductions in firm-level investment and
employment. We also show direct evidence of a novel type of contagion, where
foreign risk is transmitted across borders through firm-level exposures.
Exposed firms suffer falling market valuations and significantly retrench
their hiring and investment in response to crises abroad. Finally, we provide
direct evidence that heterogeneous currency loadings on global risk help
explain the cross-country pattern of interest rates and currency risk premia. |
| Keywords: |
country risk, contagion, investment, employment, textual analysis, earnings calls |
| JEL: |
D21 F23 F30 G15 |
| Date: |
2021–03–31 |
| URL: |
http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp157&r= |